April 09, 2013
Sir, Philip Augar, writes “Britain´s regulators were feted for their light touch” “Salz offers a prescription to protect banks from future crisis” April 9.
What? If Augar believes regulations which intrude on the markets through capital requirements for banks which allow banks to leverage 60 times or more on their equity any interest rates paid by “The Infallible” while restricting to a 12 to 1 leverage interest rates paid by “The Risky”, are “light touch” he has just not informed himself of what has been happening.
Augar writes that the most important recommendation by the recent Salz Review, commissioned by Barclays to study its culture and business practices, is the “necessity of creating the right environment for feedback… and to question accepted wisdom constantly”.
Indeed, I have for years been trying to ask regulators about their reasons for capital requirements for banks which are based on perceived risks, when those perceived risks are already cleared for by the banks in the interest rate they charge, the size of the exposure and other terms. And I have never ever received an explanation more than the normal “more risk more capital, less risk less capital that sounds logical” mumbo jumbo.
Those differential capital requirements are distorting all common sense out of the real economy. Let us remember that much more important than to protect our banks from future crisis is to protect our real economy from being assaulted by banks made dysfunctional by regulators.
And so much more urgent than opening up the boardrooms of banks, is opening up The Basel Committee, the mother of all the non-accountable to anyone mutual admiration clubs.